The Euro Essay

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On January 1, 1999, eleven European countries replaced their national currencies and introduced a single European currency, the Euro. As of then, the Euro is considered to be the official currency in the eleven participating countries. Bills and coins of the national currencies will remain in circulation as sub-denominations of the Euro until January 1, 2002, when they will be exchanged against new Euro coins and bills. However, all inter-bank commerce and stock exchange trade is now denominated in the official currency.

Conversion Rates

The irrevocable conversion rates of the participating currencies have been fixed through a unanimous vote of the European Council. The external value of the Euro corresponds to the external value of the ECU, which means that the conversion rate between them is one to one. In order to avoid speculation, the bilateral market rates were taken as the basis for the conversion. Thus the conversion rates protect the external value of the participating currencies. Furthermore, to avoid misuse of rounding in carrying out conversions, conversion rates have six significant digits. The rates shown in the table below are the official conversion rates announced on December 31, 1998. In carrying out the conversion, only the official conversion rate will be used, but not its reciprocal value. That is, to change local currency into Euro, divide by the conversion rate.

Euro Conversion Rates

Country Currency 1 Euro =

Austria ATS 13.7603

Belgium BEF 40.3399

Finland FIM 5.94573

France FRF 6.55957

Germany DEM 1.95583

Ireland IEP 0.787564

Italy ITL 1936.27

Luxembourg LUF 40.3399

Netherlands NLG 2.20371

Spain ESP 166.386

Portugal PTE 200.482

The Euro Symbol

The dollar, the pound, and the yen all have symbols to denote their currency. A new symbol has been created for the Euro: a stylized e, with two dashes instead of one in the middle. It is usually displayed in yellow color on a blue background:

Pros and Cons

Arguments for a single European currency

-Transaction Costs

Having to deal with only one currency will reduce the cost of converting one currency into another. This will benefit businesses as well as tourists.

-No Exchange Rate Uncertainty

Eliminating exchange rates between European countries eliminates the risks of unforeseen exchange rate reevaluations or devaluation's.

-Transparency & Competition

The direct comparability of prices and wages will increase competition across Europe, leading to lower prices for consumers and improved investment opportunities for businesses.

-Strength

The new Euro will be among the strongest currencies in the world, along with the US Dollar and the Japanese Yen. It will soon become the 2nd-most important reserve currency after the US Dollar.

-Capital Market

The large Euro zone will integrate the national financial markets, leading to higher efficiency in the allocation of capital in Europe.

-No Competitive Devaluation's

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